Foreign money in local bank account

QUESTION:

My father is a builder and is planning on building a house in Jamaica to retire to. He currently has savings held in a United Kingdom bank, but for ease of access, such as purchasing raw materials, he would like to have an account held in Jamaica, but is worried about the financial implications if any of the banks collapse. As he will receive an English pension, he would also like to know if that could be paid directly to a Jamaican bank account. Ideally, he would like to transfer all his money to a Jamaican bank and use that only. Many thanks in advance for your help.

- Rachel

PFA: Funds lodged in a Jamaican institution are insured to a maximum of J$600,000 per deposit per ownership category, and it is possible for funds from abroad to be transferred to an account in Jamaica.

The Jamaican Deposit Insurance Scheme, operated by the Jamaica Deposit Insurance Corporation, was set up to protect depositors and promote stability and confidence in Jamaica's financial sector.

It provides insurance against loss of depositors' funds in savings accounts, fixed/term/time deposit accounts, and chequing accounts, in Jamaican dollar-denominated accounts, as well as foreign currency-denominated accounts such as sterling, the US dollar, and the Canadian dollar held in commercial banks, merchant banks, and building societies.

It does not, however, cover commercial paper and brokered or managed funds.

Because there are several categories of accounts, and coverage applies to the accounts held in each institution, it is possible to get substantial coverage for funds held in deposit-taking institutions. Account categories include individual, joint, business, and trust.

If an individual has several accounts - savings, chequing, fixed deposit - in the same deposit-taking institution, all deposits are eligible to be aggregated and the account holder paid a maximum of J$600,000 in the event of loss.

Similarly, if the account holder has a joint account with a spouse, for example, and one with another individual, each account is eligible for a payout of a maximum of J$600,000. If the individual is a director of a company that holds an account at the same institution, the account would be eligible for a payout of J$600,000.

Total payout

In this example, the accounts belonging to the individual would be eligible for a total payout of J$2.4 million. A similar sum would be paid out if, for example, accounts were held in the same way in another deposit-taking institution.

The payout from accounts held at those two institutions would thus be J$4.8 million.

Legislation passed in March 2011 has extended these benefits to trust and nominee accounts provided that a trust or nominee agreement is in place, and that the trustee indicates to the institution the share of the account to which each person is entitled.

Each beneficiary, therefore, would be entitled to a maximum benefit of J$600,000 if the institution fails. Beyond that, if any of those beneficiaries maintains an account under another ownership category in the same institution, each account would be separately covered and not be aggregated with others.

Depositors would not necessarily lose the uninsured portion of their deposits, but may receive all or some part of it when the assets of the failed deposit-taking institutions are sold by the liquidator.

It is possible for a non-resident to open an account with a Jamaican deposit-taking institution from abroad. The application form may be sourced from the Internet, completed, and sent to the local institution with the required documents. Such an account can also be opened, of course, in person in Jamaica.

It is also possible to receive pensions from abroad by direct deposit into a local account.

The payer should be informed of the relocation, the name of the account holder, the account number, and the name and branch of the financial institution.

The funds may be remitted by wire transfer or by remittance companies like Senvia, which facilitate the transfer of pensions.

Whereas the customer incurs a cost for receiving funds by wire transfer, no charge is generally incurred for accepting funds sent by a remittance company.

There is a reasonable amount of insurance coverage for money being held in accounts covered by deposit insurance, but it should be remembered that there are short-term government securities, which, though not covered by insurance, are safe and generally give higher yields.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial planning. Email: finviser.jm@gmail.com.